Medicare Part D Cost Increase Estimate Lowered

Net Medicare Part D costs for fiscal year 2008 are estimated to be 30 percent less — $189 billion lower — than projected when the benefit was created back in 2003, according to independent actuaries.

In addition, based on competitive bids by health care plans in 2007, the average monthly premium will be approximately $22, down from $23 in 2006, if enrollees remain with their current plans.

The updated Medicare Part D baseline of payments to Part D plans for the fiscal year 2008 budget cycle was decreased from last summer's mid-session review numbers by $113 billion over the next 10 years (from 2007 to 2016). CMS actuaries say $96 billion of the $113 billion reduction is a direct result of competition and significantly lower Part D bids.

"Part D drug plans produced greater than expected savings for by competing for Medicare beneficiaries and aggressively negotiating with drug companies," says acting CMS Administrator Leslie V. Norwalk.

Two other factors lowered the estimated cost of Part D payments to plans: lower growth in drug costs in general, and lower enrollment than originally expected.

When the actual drug costs for 2005 were reviewed, Medicare saw a $13 billion reduction in the new baseline, compared to last summer's mid-session review estimates.

The reduced Part D cost estimates reflect lower growth in drug costs than had been expected, with a single-digit percentage increase (5 percent in 2005) observed for only the second time in more than a decade. Slow growth in actual drug prices and costs is expected to continue as more generic drugs become available.

Lower-than-expected enrollment also reduced Medicare Part D payments to plans by $20 million. CMS actuaries found that many Medicare beneficiaries had secondary sources of prescription drug coverage, such as the Federal Employees Health Benefit, Tricare, and the Veterans Health Administration.

They did not need to sign up for what would have been duplicate coverage under Part D.

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